India increases subsidy on cooking gas cylinders

NEW DELHI, Jan 30 (Reuters) - India's coalition government on Thursday increased the subsidy on cooking gas, acceding to popular demand as it gears up for a tough national election due by May.

The decision to increase the cap on annual sales of subsidised cooking gas cylinders to 12 from 9 per household was made days after Rahul Gandhi, vice president of the ruling Congress party, demanded a raise in the ceiling.

The move, which will cost the exchequer 50 billion rupees ($800.5 million), comes at a time when federal finances are under pressure in the face of weak tax receipts in a slowing economy and high public spending.

It also flies in the face of Prime Minister Manmohan Singh's commitment to trim spending on fuel subsidies, which is at the heart of his struggle to balance the federal budget.

But Manish Tewari, information and broadcasting minister in Singh's cabinet, said the government would not shy away from taking consumer-friendly decisions.

"Let there be no ambiguity that the UPA (coalition)government will not put any consumer to any hardship at all," he said.

The Congress party is racing against time to win back voters, disenchanted by a slew of corruption scandals and a dramatic decline the country's economic fortunes on its watch.

The ruling coalition is trailing in opinion polls and many analysts believe it is unlikey to win a third term in power.

Under the subsidies, households will be entitled to buy the cylinders at less than half the market price. It is a highly popular, and sometimes vital, scheme in this country of 1.2 billion people.

The ruling party is also seeking to protect its turf from the Aam Aadmi - or Common Man - Party (AAP), which is threatening to draw support away from the poor, Congress' main voters.

The AAP government in the national capital has slashed power and water prices, sparking demands by lawmakers in other states for similar reductions.

In the lead-up to the national election, investors fret that the party, known for its penchant for populist welfare schemes, will shun the tough economic reforms needed to revive an economy that is growing below its slowest pace in a decade.

The Congress-headed government in the western state of Maharashtra last week decided to cut electricity tariffs by a fifth with immediate effect.

High government spending on subsidies such as food, fuel and fertiliser coupled with slower-than-budgeted tax receipts have made it tougher for Singh to deliver on the government's pledge to narrow the fiscal deficit to 4.8 percent of gross domestic product (GDP) in the fiscal year to March 2014.

The fiscal deficit by November had reached nearly 94 percent of the government's full-year target, piling pressure on Singh to find alternative sources of revenue.

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